On the definition of risk

Abstract

This paper aims to build, through the collection of inputs from prior research, regulatory input and practitioner’s experience, a comprehensive definition of risk. Risk is not measurable uncertainty or volatility. Risk is a three-part concept: (1) risk is the potential that events may have an unexpected and noteworthy impact on results, ie a consequence of exposure while pursuing objectives in an uncertain environment; (2) risk is ontological uncertainty, the unknown unknown; and (3) risk is the perception of expected utility, as how risk is individually perceived and socially amplified influences its experience and subsequent effects. So, the challenge is to deal with risk by understanding the impossibility of predicting the future. One should learn from the past but simultaneously accept that not all past lessons address every issue coming our way.